NCUA Study Details Risky Mortgage Investments

An analysis by federal regulators of investments held by two large corporate credit unions prior to their March 20 takeover shows that they had a vast exposure to risky subprime, Alt-A and payment option ARM mortgage securities. The two corporate CUs — U.S. Central FCU and WesCorp FCU — provided liquidity to smaller credit unions. Placed into conservatorship by federal regulators last month, U.S. Central and WesCorp accumulated billions of dollars in losses on their mortgage securities. The National Credit Union Administration analysis released Friday and based on a review by bond experts PIMCO shows that securities backed by the risky mortgages (most of them rated AAA at the time of purchase) continued to deteriorate over the past two years with defaults and foreclosures skyrocketing and forcing down the ratings on many of them to below investment-grade. At U.S. Central, where 95% of its $35 billion of holdings were rated AAA at purchase, more than half of those holdings — a staggering $17 billion — had slid below AAA, while almost one-third, $11 billion worth, were below investment grade at Feb. 23.